The choice of tax-deductible plans is a management decision which should be made by the individual utility. To provide utility management greater flexibility in funding and controlling PBOP costs and benefits, the utilities should be granted authority to implement trusts whose earnings may be taxable to the trust or to the employees. (46 CPUC 2d 499, 520. Emphasis added.)

The Commission made it clear in OP 2.d of D.92-12-015 that it would be the final arbiter of what constitutes reasonable funding of FAS 106 costs and the amount of FAS 106 costs that may be recovered in rates. OP 2.d states:

2. Regulated utilities under traditional cost-of-service ratemaking...shall be authorized to recover their PBOP costs associated with the adoption of [FAS 106] and actually paid to independent trusts to the extent that the utilities:

d. Incur PBOP costs that the Commission finds are reasonable and necessary to meet funding requirements based on fair actuarial assumptions, contributions, and investments.

The Settlement Agreement adopted by D.93-08-033 set forth the procedures the Commission would use to review and authorize the recovery of Cal Water's FAS 106 costs in accordance with D.92-12-015. Cal Water implemented the Settlement by filing AL 1341. The Advice Letter indicated that Cal Water intended to use a 401(h) account and to record a regulatory asset. The Advice Letter also included the following documents: (1) copies of all trust agreements and actuarial valuations; and (2) work papers showing the derivation of the revenue requirement for FAS 106 costs.

CACD approved AL 1341 in June 1994, stating: